The Bear Market Rally is Slowing But the Crypto Industry Isn’t Going Anywhere

August 17, 2022

Cryptocurrencies: Weekly Update


As exciting as equity markets have been for the past 2 months, it is starting to seem like this bear market rally may end soon. Prices have slumped across the cryptocurrency market to start the week, but not enough to really scare anyone just yet.

Stocks also look to be digesting recent gains and are reeling at overbought levels, while the S&P 500 and Russell 2000 are rolling over after hitting major resistance at their 200-day moving averages. Both SPY and IWM are mean reverting from overbought levels on both price and momentum according to the RealMotion indicator, and a close below their current trendlines would be your first signal that the rally in equities is over.

Bitcoin doesn’t look to be in such dire straights as stocks when it comes to its current price action, but underlying momentum according to RealMotion tells a different story. Bitcoin’s long-term momentum is clearly rolling over after hitting resistance at its 200-day moving average. As it stands, BTC looks like it's going to close Wednesday below its current trendlines on price after already breaking below the trend on momentum yesterday.

Ethereum is still holding its current trend on price but has broken down on its long-term momentum after reaching overbought levels. Price will likely find temporary support at/around $1,730, but could be headed back down to its 50-day moving average if not lower if the price breaks down from here.

ETH rolled over under similar conditions after a strong month-long rally in March, showing us that we may be at the top of the current rally as well.

All of that being said, it really looks like equities are in a precarious position and are very likely at the top of their current counter-trend.

It isn’t all doom and gloom though for the cryptocurrency/blockchain industry, with evidence of institutional support and investments into the space becoming more apparent nearly every week.

The biggest names in banking, finance, and technology are all making major investments in blockchain and cryptocurrency-based services, so even with a shaky-looking market and global economic situation, the future of the industry itself looks as strong as ever.

Over the past month, we’ve seen Ethereum’s market cap dominance skyrocket, especially relative to Bitcoin and Stablecoin market caps.

Now, we’re seeing short-term reversals in the two largest stablecoins Tether and Circle (USDT & USDC), while ETH has seen its own dominance break down. Meanwhile, Bitcoin’s market cap dominance has been on a steady decline as altcoins have stolen a portion of its market share during this rally.

Anticipation for the ETH merge to Proof-of-Stake has heavily fueled the recent outperformance in altcoins, and has clearly had a trickle-down effect during the current rally with even Layer 2 coins rebounding from recent lows. However, with all of the aforementioned signs of the current rally ending soon, it may be time to start being a bit more defensive with our crypto positions.

Our CryptoPulse Quant strategy has taken advantage of the bear rally after spending nearly 3 months in cash, and thanks to strategic timing and risk management our Year-to-Date performance is not only positive but up more than 17%. 

We are aware that some traders following our CPQ strategy tend to use our signals for just simple entries or exits while choosing to manage their active position sizing during a trade in a more discretionary manner. For those aforementioned traders, you may be interested in the current action on your MATIC and UNI positions in the charts below.

Our Polygon (MATIC) position has taken profits at 2 target levels (40% and 80%), and still has ⅔ of the original position active, while Uniswap (UNI) has reached 1 profit target at 40% and has a breakeven stop for the remainder of our position. Of course, our system is fully quantitative and it will lock in profits for both the current MATIC and UNI positions, but in the event of a breakdown from here, you may not want to hold on to the positions all the way down to the current stops listed for our positions.

MATIC is at risk of closing below its short-term price trend that has been intact since breaking out of its previous consolidation range on July 14 but still looks to have support at its mid-term trendline that starts at the 2022 low from June 18.

It is clear that MATIC wasn’t able to break through resistance at the $1.01 level and now looks likely to test its 50-dma on price. However, long-term momentum according to RealMotion is very close to making a golden cross on its own moving averages, creating a potential bullish divergence on underlying momentum. For anyone looking for a more profitable exit than our current listed stop on the MATIC position, it looks like the 50-dma is likely to be our strongest support level to hold, and if it doesn’t then you may want to consider going to cash to weather any further selling.

Technically, UNI looks a lot stronger than much of the rest of the cryptocurrency market as it currently stands. UNI saw a bullish divergence on its long-term momentum according to RealMotion on July 20 which preceded a roughly 40% breakout to above the 200-dma on price. Now, we’re looking likely to see a golden cross on price in the coming week or two, which would create full bullish conditions on both price and momentum.

So although overarching market conditions aren’t exactly looking great, UNI actually has some positive things going for it. Right now we have clear support levels on price because although we may see a close below $8.14 support, the 200-day and 50-day moving averages are still very much alive for now.

At the end of the day, we aren’t certain that the current bear market rally has come to an end just yet, but all of the above charts definitely make it look that way. Make sure to stay defensive for the foreseeable future, and best of luck in your trading!

Check out our new CryptoPulse Twitter account @MGCryptoPulse for daily tweets and updates about the crypto space!